Court ruling curbs contractors, agents in favor of lawyers

Every day, California’s contractors negotiate written and oral contracts for clients and other third parties. So do art dealers, retail store clerks, car brokers, insurance, real estate and talent agents, auctioneers, architects and others.

If the state Supreme Court refuses review on a recently published 2nd District Court of Appeals decision, any of those transactions done without an attorney signing off on the terms will be unlawful. 

Bacall v. Shumway, B302787, certified for publication on March 16, 2021, affirmed a trial court determination that an arbitrator had authority to find a personal manager who was, “corresponding with attorneys, redlining agreements, and making comments on proposed contracts” had engaged in the unlicensed practice of law.

As the unlicensed practice of law is a misdemeanor, there will be a risk of losing owed monies and facing potential jail time.

The aftershock of this holding becoming the state’s interpretation of how business transactions must be negotiated may be earth shattering. 

Most likely sooner versus later, a general contractor or architect will successfully complete a project, but instead of receiving the balance due will be asked to prove they are a practicing attorney. If they cannot, the client will claim that in negotiating the contracts with the electricians, landscape architect, pool construction engineers, plumbers, and carpenters without the requisite license, the builder engaged in the unlicensed practice of law.

There is more reason why the businesses who regularly negotiate for third parties may wish to file an amicus letter with the state Supreme Court, to help ensure the Jurists consider this issue before the Bacall holding is citable.

As the unlicensed practice of law is a misdemeanor, there will be a risk of losing owed monies and facing potential jail time. Before another litigant has the financial wherewithal and determination to litigate through the Court of Appeals, many will walk away or settle for fractions of what was originally owed.

This enforcement will not just compromise those unaware or choosing not to follow it, as the holding is absolute and does not consider the simplicity or sophistication of the proposed transaction. it will create gridlock for those abiding by this change in law.

Though the State Bar Act does not speak to the elements of negotiation, it is understood that negotiating contracts is a defining activity of an attorney.

For example, every person who appears in a television show or film — from the stars to the atmosphere to the background actors — sign written contracts. If a scene requires 400 extras, now production will be delayed until attorneys can facilitate the execution of 400 contracts.

Relatedly, it will be almost impossible to find people willing to take on “extra” work. Extras make between $60 – $120 per day plus 10% for the agent’s commission; it will cost the actors more than they make to pay for a lawyer to negotiate the deal. 

Though the State Bar Act does not speak to the elements of negotiation, it is understood that negotiating contracts is a defining activity of an attorney. The question Bacall raises, and one of huge public concern, is whether defining activities of a licensing scheme are axiomatically regulated activities, or must there be statutory guidance that expressly reserves that activity for licensees?

For a layperson, it seems obvious that just as with contractors, locksmiths and most other licensing schemes, there must be statutes clearly stating what activities are regulated, requiring a license and at times, additional certification.

As the State Bar Act has no such exemptions for specialists, there is a cruel irony should Bacall stand.

The Accountancy Act expressly defines the activities that are reserved for licensees and which activities non-licensees can engage in —  as long as the non-licensee “does not hold himself or herself out, solicit or advertise for clients using the certified public accountant or public accountant designation”.

Other licensing schemes, like the State’s Pharmacy and Real Estate Acts, include exemptions for qualified specialists – doctors and veterinarians for the former, attorneys for the latter.

As the State Bar Act has no such exemptions for specialists, there is a cruel irony should Bacall stand. The case revolves around a talent representative negotiating a deal for a screenwriter, and now that only licensed attorneys have the authority to negotiate contracts, talent agents will be legally barred from engaging in a defining activity of their profession on their own, to procure employment opportunities and contracts for artists.

Los Angeles County’s Unlicensed Practice of Law Manual For Prosecutors lists several examples of the activities California courts have reserved for licensees: providing legal advice and counsel before there a court case is initiated, preparing a deed trust, operating an eviction service, providing bankruptcy legal services, preparing marital dissolution documents, selling estate planning services, operating a phony ‘legal aid’ business, and holding oneself out as a licensed attorney.

Not only is executing a business contract not on the list, but the entire manual only mentions the term ‘negotiating’ once: noting that negotiating a tax settlement was within the purview of an accountant. 

Bacall is currently at the California Supreme Court (S268407) review. The final brief was filed on May 24, meaning the Justices have up to ninety days to decide whether this matter is worthy of their consideration.

Having to use an attorney to negotiate all contracts might be the largest change in how business is transacted in this state’s history. 

It is time for all Californians to know whether any defining activity is also a regulated one, irrespective of the existence of any statute expressing that limitation.
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Editor’s Note: Rick Siegel is a personal manager and the president of Marathon Entertainment.